The Holding company regime in Spain

Opening a holding company in Spain - Entidad de Tenencia de Valores Extranjeros

The Holding companies in Spain are known as "ETVE's" (Entidades de Tenencia de Valores Extranjeros). These have been succesful as a vehicle for a holding company.

They are based on the idea:

• There is a total exemption from Spanish taxes on dividends received outside Spain, and an exemption from capital gains received from the sale of shares in associated foreign companies 
• There is no tax for Spanish residents in the above cases - the capital gains can be distributed without any withholding taxes. 
• There are no special restrictions to deduct from the costs, even if they are related to external profits.
• There is complete access to the network of tax treaties in Spain (and the majority of countries in Latin America)
• The Eurpean Union directives apply here

A ETVE is a regular spanish company subject to a 35% tax on its profits but exempt from foreign dividends and capital gain. They are protected by EU directives like the Directiva de Filial Matriz and the Directiva de Fusión and are treated as residents for tax purposes in acordance with the 50 tax treaties of Spain. The wide network of treaties with Latin America and the european character of the ETVE make them an interesting medium to channel to invest capital to Latin America and also a tax efficient route for capital investments for companies that aren't in the EU. They are similar to the holding companies of Holland or the SOFARPI of Luxemburg but slighlty less costly. 

Key Advantages

Dividends: They are sent from the subsidiary company to the holding company and are exempt from corporation tax or the withholding tax is reduced.

The profits of the received dividends are not subject to corporation tax: The profits of dividends recieved by the holding company by the subsidiary company have to be exempt or subject to low tax retention fees in the jurisdiction where the subsidiary is found.

Tax on capital gain on the sale of shares: The profits that the holdig company recieves on the sale of the shares of the subsidiary company are exempt or subject to reduced tax on the capital gain, depending on the jurisdiction of the holding company. 

There is no retention of taxes on the dividends : These dividends must be exepmt or subject to low tax rates in the jurisdiction of the holding company. 

According to this criteria, Spain is a moderatley attractive jurisdiction to establish a holding company but without the advantages of Denmark.

Withholding Taxes on Dividend Income

As a member of the EU, Spain is governed by the provisions of the EU holding directives which dictate if the holding society controls less that 25% of the shares of a EU subsidiary  for a minimum of 12 months, any dividend sent by the subsidiary company to the spanish holding company is free of tax retention. 

The laws of the spanish holding companies include the exemption of participants at a level of 5% for shares of non-residents, that can be direct or indirect. The shares must have been subjected to a minimum of 12 months. 

The subsidiary companies should not be resident in Spain and not have any corporate activity in Spain

When the provisions of the EU directives on subsidiary companies are not applicable, the spanish holding companies can count with an extensive network of double tax to achieve a reduction in the rates of tax retention on the dividens sent to Spain from the subsidiary company. 

Spain has 50 double tax treaties (Denmark has 78 and the UK has 110). The larger the network of double tax treaties of a country, larger it's influence to reduce the tax retention on the incoming dividends. Therefore, having a wide network of double tax treaties is a key factor for a jurisdiction to seem attractive to form a holding company.

The profits of the dividends sent by the subsidiary company to the ETVE holding company must have been taxable to a percentage of the rates of tax on the corporate rent aplicable in Spain. .

The profits sent to the ETVE must be related to those obtained by the primary activities and must not include ''passive gainings''. 

There will be no corporation tax on dividends receivable

The tax fee on the corporate rent applied in Spain is 35%. The profits earned from an ETVE, stated in the parragraph above, are free of corporate tax in Spain. The ETVE must have an effective presence in Spain and must be a solid company, actively employing people.

There will be no corporation tax or capital gains tax on the sale of shares

Any capital gain obtained by a ETVE of the sale of shares of non-resident subsiduary companies is free of tax in the majority of cases. Such tax is of 35% in Spain.

There should be no withholding tax on dividends paid to shareholders

The dividends paid out by a spanish intermediary holding company to it's non-resident company, are free of tax retention in Spain (with or without a double tax treaty) unless the non-resident company doesn't pay equivalent corporate taxes to those that apply in Spain. This evidently rules out lots of offshore jurisdictions.

If the holding society isn't an EU entity or if these conditions aren't followed, there is no tax retention of 25% unless the rate is reduced (generally between 5 and 15%) because of the conditions of a double tax treaty.